Underwater Homeowners Surface More Slowly

In the first quarter some 9.1 million U.S. residential properties were seriously underwater — where the combined loan amount secured by the property is at least 25 percent higher than the property’s estimated market value — representing 17 percent of all properties with a mortgage.

That’s the lowest level since RealtyTrac began reporting negative equity in the first quarter of 2012. In the fourth quarter of 2013, 9.3 million residential properties representing 19 percent of all properties with a mortgage were seriously underwater, and in the first quarter of 2013 10.9 million residential properties representing 26 percent of all properties with a mortgage were seriously underwater. The recent peak in negative equity was the second quarter of 2012, when 12.8 million U.S. residential properties representing 29 percent of all properties with a mortgage were seriously underwater.

“U.S. homeowners are continuing to recover equity lost during the Great Recession, but the pace of that recovering equity slowed in the first quarter, corresponding to slowing home price appreciation,” said Daren Blomquist, vice president at RealtyTrac. “Slower price appreciation means the 9 million homeowners seriously underwater could still have a long road back to positive equity.

“The relatively high percentage of foreclosures with equity is surprising to many because it would seem homeowners with equity could easily avoid foreclosure by leveraging that equity by refinancing or with an equity sale of the home,” Blomquist noted. “But many distressed homeowners with equity may not realize they have equity and in some cases have vacated the property already, assuming that foreclosure is inevitable.”

The universe of equity-rich properties — those with at least 50 percent equity — grew to 9.9 million representing 19 percent of all properties with a mortgage in the first quarter, up from 9.1 million representing 18 percent of all properties with a mortgage in the fourth quarter of 2013.

Another 8.5 million properties were on the verge of resurfacing in the first quarter, with between 10 percent negative equity and 10 percent positive equity. This segment represented 16 percent of all properties with a mortgage in the first quarter. That was compared to 8.3 million properties representing 17 percent of all properties with a mortgage in the fourth quarter of 2013.

Fewer distressed properties had negative equity in the first quarter, with 45 percent of all properties in the foreclosure process seriously underwater — down from 48 percent in the fourth quarter of 2013 and down from 58 percent in the first quarter of 2013. Conversely, the share of foreclosures with positive equity increased to 35 percent in the first quarter, up from 31 percent in the fourth quarter and up from 24 percent in the third quarter of 2013.

“Homeowners are no longer underwater on their homes like they were at the peak of 2012,” said Sheldon Detrick, CEO of Prudential Detrick/Alliance Realty, covering the Oklahoma City and Tulsa, Okla., markets. “Low housing inventory and more buyers are causing home prices to rise and sell over list price, giving homeowners who are moderately underwater a chance to avoid the foreclosure process.”

The RealtyTrac U.S. Home Equity & Underwater report provides counts of residential properties based on several categories of equity — or loan to value (LTV) — at the state, metro and county level, along with the percentage of total residential properties with a mortgage that each equity category represents. The equity/LTV calculation is derived from a combination of record-level open loan data and record-level estimated property value data, and is also matched against record-level foreclosure data to determine foreclosure status for each equity/LTV category.

Definitions

Deeply underwater: Loan to value ratio of 125 percent or above, meaning the homeowner owed at least 25 percent more than the estimated market value of the property.

Equity Rich: Loan to value ratio of 50 percent or lower, meaning the homeowner had at least 50 percent equity.

Foreclosures w/Equity: Properties in some stage of the foreclosure process (default or scheduled for auction, not including bank-owned) where the loan to value ratio was 100 percent or lower.

The Ultimate Guide to Fighting Low Appraisals

Nearly half the home buyers in America experience something like this:
You’ve saved for a down payment and worked hard to get approved for a mortgage. After months of looking, you found a great house that meets your needs and fits your budget. Your offer has been accepted. You spent money on inspections, a title search, a survey and other closing costs. As the closing date nears, you gave notice where you live and put down a deposit on a moving company.

Then you receive a letter from your lender. Your dream home has appraised five percent lower than you anticipated based upon the price you had agreed upon with the seller. The lender is unwilling to increase the amount of your loan.

The clock is ticking toward closing. If you don’t come up the difference in time, the house is gone. You’re out of pocket for your costs to date and you have to start your search over. It may take months or longer to find a deal

Sound familiar?
Whether you’re a buyer or seller, now you can fight back when a low appraisal threatens to cost you serious money, or to lose the house of your dreams.